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Hetereogeneous firms, growth and the long shadows of business cycles

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Listed:
  • Cristiana Bendetti-Fasil
  • Giammario Impullitti
  • Omar Licandro
  • Petr Sedlacek
  • Adam Hal Spencer

Abstract

R&D is procyclical and a crucial driver of growth. Evidence indicates that innovation activity varies widely across firms. Is there heterogeneity in innovation cyclicality? Does innovation heterogeneity matter for business cycle propagation? We provide empirical evidence that more productive firms are less procyclical in innovation. We develop a model replicating this observation, with selection as the driver of heterogeneous innovation cyclicality. We then examine how heterogeneous innovation and growth influence business cycle propagation. Dynamics of firm entry and exit, coupled with heterogeneous cyclicality, significantly amplify TFP shock propagation. Business cycle fluctuations give substantial welfare losses, with firm heterogeneity contributing significantly.

Suggested Citation

  • Cristiana Bendetti-Fasil & Giammario Impullitti & Omar Licandro & Petr Sedlacek & Adam Hal Spencer, 2024. "Hetereogeneous firms, growth and the long shadows of business cycles," Discussion Papers 2024/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:2024/03
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    Keywords

    Growth; Business Cycles; Innovation; Heterogeneous Firms;
    All these keywords.

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